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Enlightenment Through Understanding

The Greatest Bull Market Ever*

March 9, 2015

* Technically, this isn’t the greatest bull market ever (the one following the Great Depression was bigger), but we’ll just assume this one will continue long enough that inevitably it will claim the title, maybe within a few years or so when the S&P 500 crosses 2500.

The biological determinism bull market rages on with no sign of slowing. As far back as 2011, I’ve been telling readers to not bet against America and its best and brightest, to not bet against the fed and the consumer, to ignore the doom and gloom crap/wishful thinking from ZeroHedge and MarketTicker, to keep buying the dips, and that the Great Moderation and Goldilocks Economy of modest growth and tame inflation would continue for years to come. And sure enough, I was right. The S&P 500 is up almost 70% since 2011 and 200% since 2009, and it has much higher to go.

The stock market is never going lower again. You lose, libs. OWS loses. The 1%, high-IQ, and the Creative Class wins again. The bull market is built upon the crushed skulls and crushed dreams of those foolish enough to bet against it, forcing these peons and pedants to frantically cover their bets at a loss, which pushes the market even higher in a virtuous cycle. The US economic supremacy and Pinker’s ‘Long Peace’ will continue for decades to come, making the rest of the world quaint and disorderly by comparison as Europe struggles with deflation and Russia and Turkey struggle with high inflation and regimes sitting on powder kegs.

Economic fundamentals and scarcity are pushing this market higher, not fed money and other various stupid conspiracies that mislead so many people. You could have listened to a gasbag like Peter Schiff and put all your money in gold and Euros and been down 40% in a market that has risen 70%. Or heeded the irascible, hotheaded liberal Nicholas Nassim Taleb about ‘hidden risks’ and the black swan that will never come. Or the predictions of dollar collapse, hyperinflation and bank crisis relapse that were all just smoke and mirrors.

From the article:

Q: Why do stocks keep rising?

A: It’s a powerful combination of higher corporate profits and a growing economy.

The main driver is company earnings. Companies slashed costs in response to the Great Recession that began in December 2007. That helped boost profit margins when demand began to recover. As a result, earnings per share have risen consistently since the end of the recession in 2009. Companies in the S&P 500 are forecast to generate record earnings of $119.35 per share this year, nearly double what they earned in 2009.

Hiring is picking up and costs are down, and that means Americans are more confident about the economy than at any time since the recession. Unemployment has fallen to 5.5% from a peak of 10% in 2009. A plunge in the price of oil has pushed down gas prices and put more money in Americans’ pockets. Most economists forecast growth of more than 3% this year

See, no fed conspiracies; just strong fundamentals. Yes, QE did help to some degree, but it’s hardly the only cause. QE isn’t the reason why Apple made $18 billion profit in a single a quarter, or why Facebook went from just another social network to the 2nd biggest internet property in the world, second only to Google. The PE ratio of the S&P 500 is still just 17. For valuations to rise to the levels last seen during the peak in 2007, the S&P 500 could rise as high as 2,500 – and that is assuming earnings are flat; if earnings rise, stock prices can rise much higher.

For those that want to play along, I recommend the following sector-based ETFa:

Healthcare & Biotech Mix: XLV, RYH

Consumer Discretionary: RTH, XRT, XLY

20-year Treasury Bond: TLT

10-Year Treasury: IEF

I recommend 40% of capital in treasuries and 60% split between Healthcare and Retail. This will beat 99% of fund managers.